One of the reasons why Wall Street and Washington are always so keen to propagandize about a rosy outlook, regardless of what the economic data and other evidence might be suggesting, is because they understand that attitudes and psychology can and do play a powerful role when it comes to consumer behavior.
If, for example, John and Jane Smith are thinking about spending money, maybe for something they really need, but sense that many others in the same boat might be holding back or are otherwise worried about the future, that can leave the Smiths feeling apprehensive, causing them to put even their most urgent buying plans on hold (at least temporarily).
Still, it's one thing for consumers to start feeling antsy about the future. It's quite another, however, when business leaders start feeling that way, because the steps they take in response tend to have a more far-reaching and often dramatically self-fulfilling impact. In "Corporate America Braced for Recession," the Financial Times' Francesco Guerrera reports that sentiment on Main Street is now firmly in the negative.
Leading US companies are shifting into recession mode and preparing to cut costs, freeze hiring and reduce capital spending as they brace for an economic slowdown, senior executives and industry experts said.
Their concerns are likely to be reinforced by the International Monetary Fund, which slashed its forecast for US growth and warned that no country would be completely immune from what it termed a “global slowdown”.
Separately, a US study due out today shows that chief financial officers’ views of the economy are the most pessimistic in nearly four years.
Business leaders say rising oil prices, sagging consumer confidence and the on-going credit crunch are prompting them to put in place contingency plans to protect against the expected economic downturn.
“We have a number of levers we can pull in terms of capital and costs,” said Andrew Liveris, chief executive of Dow Chemical, which reported a halving in fourth-quarter earnings. “We have been buttoned down since July with a total clampdown on costs and capital expenditure.”
Jim Owens, chief executive of Caterpillar, the world’s largest maker of construction equipment and a company regarded as a gauge of national economic health, last week warned of “anaemic growth in the US”.
Multinationals are counting on growth in overseas demand and the weak dollar to offset domestic weakness.
A leading US management consultant said that over the past few months, his firm had been “deluged” with calls from smaller, domestically-focused companies asking for advice on how to deal with a recession.
“They all want to know what to cut and what to hold back if the economy hits the buffers,” he said.
Chief financial officers polled by Financial Executives International, an association of financial executives, and The City University of New York’s Baruch College, reflected this negative mood about US economic prospects.
In the last quarter of 2007, CFOs’ economic optimism touched its lowest level since June 2004, when the survey was first carried out, and recorded a 10 per cent fall over the previous three months.